The World Economy Is Turning Japanese, I Really Think So

Get out your chopsticks! Brush up on your sushi! Learn to read backwards and upside down! Yes...we’re going to Japan!

The gist of the Japanese situation is this: The bubble burst in 1990. But rather than let their big businesses go belly up, the Japanese used every trick in the book. Counter-cyclical deficits up the Shinanho. ZIRP (zero interest rate policy). And QE, too.

The economy didn’t grow. It didn’t collapse. It just got stuck...like a moth in amber. No new jobs. No new output. And get this, Japan is expected to lose 40% of its working age population by 2050. Look at the EWJ for a proxy of pain in the stock market.

But Japan is a leader, not a follower. Over the next 40 years, Germany will lose more than 30% of its working age population too. Russia and Poland will lose even more.

Growth is expected to be negligible over the next 40 years in Japan. But it will be almost nothing in many other countries too, according to an HSBC report. It estimates that the US will grow at around 1.5% annually. France 1.1%. Denmark, Norway, Sweden — barely anything at all.

What does this sound like to you, dear reader? It sounds like the whole developed world going Japan’s way — with low growth and high debts from here to eternity.

As in Japan, so in Europe and America. The European Central Bank is lending the banks as much as they want at low rates. The Fed has its own ZIRP, which it says it will keep in place until 2014.

Growth is stalled, debts are mounting up. Hello, Tokyo! But wait, here’s the Congressional Budget Office telling us that Congress will have those deficits under control in no time.

“Deficits to fall sharply, U.S. forecast says,” reports the International Herald Tribune.

What a relief that is! The CBO has crunched the numbers. It has beaten up the 2s. It has punched out the 5s. It has pounded the 6s. And now, finally, like prisoners at Guantanamo, the numbers tell us what we want to hear.